Investing in Malaysia Property: The Ultimate Guide

Malaysia straddles the busiest shipping lane in the entire world, the Strait of Malacca. This has allowed its economy to perform well based simply on where it’s located on the map. “Location, location, location” is true anywhere in the world. Malaysia property abides by that rule on a country-wide level.

Combine this with capital flight from the Middle East, notable oil reserves, business-friendly policies, and the strongest Islamic Banking industry in the world. Malaysia is no doubt one of Asia’s best places to invest.

However, Malaysia remains overlooked for some reason. It’s never gotten the attention of neighboring Thailand and Singapore. But this is quickly changing and property investors should take note.

Investors should also note that Malaysia is practically the only country in Asia which allows foreigners to own land. There are a few restrictions covered later. But the laws help make things a lot easier than in most places.

Therefore, Malaysia has more options than most of Asia’s other property markets. The ability to own land not only opens several entirely different classes of investment (houses, the ability to develop, etc.) but also different cities and towns.

For example, foreign buyers may only own condominium units in Thailand. This leaves them essentially blocked off from smaller cities. That’s because there’s few, if any, condominium buildings in places like Khon Kaen and Nakorn Ratchasima.

There’s more cities to choose from in Malaysia since you can own land. You can own the typical condo unit in Kuala Lumpur, but you can also own a townhouse in Penang or a mansion in Kuching.

Things aren’t completely rosy for Malaysia’s property market. Rental yields are abysmal, hovering at around 3% in Kuala Lumpur and Penang. Occupancy rates are low throughout the country. Several major cities are thought of as overdeveloped by even the locals.

But one thing Malaysia has is population growth. The country’s population will surge from 30 million now to over 40 million by 2050. This will help absorb supply over the long term.

A rising middle class will also help. Malaysia plans to be a developed country by the year 2030.

Political problems may not go away as easily as a few overdeveloped cities. But looking at the mighty Petronas Twin Towers will show you that Malaysia has a way of making the seemingly impossible happen.

Unlike almost every other country in Asia, foreigners can own houses and other landed properties in Malaysia.

Can Foreigners Invest in Malaysia Real Estate?

As the only country in Southeast Asia where foreigners can own land (at least easily and directly), you may not only just own the typical condominium unit but also houses, townhouses and land.

However, it’s not quite that simple, there’s a few restrictions and quirks, and land does fall into different categories.

For starters, there’s a minimum purchase requirement for foreign purchasers. The purpose of this is to allow foreign buyers in the mid to high-end segment, while not letting them drive up the value of homes in the price range of normal, everyday Malaysians.

The minimum purchase requirement is RM1 Million (about US$225,000 as of early 2017), but in the State of Selangor it’s RM2 Million and foreigners may only purchase landed properties if they’re in gated communities. This price has been raised several times with the latest in 2014.

In addition to this, foreign buyers may not own land designated as “Bumiputra only” – Bumiputra meaning ethnic, Muslim Malays. They also cannot own most agricultural land or properties designated as low or medium cost housing by the state authority.

How Much Are Property Taxes in Malaysia?

High taxes are one weak point of investing in Malaysia property. Rental income tax in Malaysia is a flat 20% rate for residents. This is obviously very high and taxes are even higher at 25% if you’re a non-resident.

Real Property Gains Tax (RPGT), paid on any profit made when selling property, is also very high if you’ve held a property for less than half a decade. Capital gains tax in Malaysia is 20% if selling a property held less than 5 years, but only 5% if it’s been held less than 5 years.

The goal of this is to prevent speculation by short term buyers. Most countries in the region assess a similar tax, except Cambodia.

There’s also an annual property tax but it’s not very high at all – between 1 sen (about US$0.002) and 2 sen (about US0.004) per square foot. This is also in addition to an annual “quit rent” tax, but it’s usually less than 100 Ringgit (US$25).

If you’re purchasing a condominium unit or belong to a landed community, they’ll very likely have an annual maintenance fee as well. These vary widely based on location, facilities, density and standards – but generally hover around RM4 (US$1) per square foot.

Is Buying Property in Malaysia Safe?

Malaysia has one of Southeast Asia’s most well-documented and secure titling systems. This is the case for both land and condominium units, so you’re unlikely to have any problems from the government.

Therefore, any problems or things to look out for – as is the case in almost every property market in the world – would be those coming from the development company or builder.

If you’re purchasing from any reputable company though, you shouldn’t have any problems. New homes and condo units always come with a warranty. The developer is required to honor their warranty and build the project to the specifications given in the purchase agreement.

There’s about twelve publicly listed developers. Being listed on the country’s stock exchange, the Bursa Malaysia, is usually a good sign that a firm has a strong reputation.

Being listed means a company meet certain financial standards, capitalization requirements, and are accountable to their shareholders. They aren’t going to just run out of money halfway through the project.

Places to Invest in Malaysia

With a population of just around 30 million people, Malaysia is one of Asia’s smaller countries. But the mere fact that foreigners are able to own land opens up just every Malaysian town and city for investment and means there’s tons of options.

Compare this to, for example, Thailand which has a larger population but where foreigners may only own condominium units. You probably won’t find many condo projects in Chiang Rai or Nakhon Nayok.

Most things of any business or political importance go through Kuala Lumpur. However, plenty of midsize cities such as Penang, Kota Kinabalu, Johor Bahru, and Kuching and popular among locals, expats, and retirees alike.

Kuala Lumpur is one of Asia’s most diverse and international cities.

Kuala Lumpur

Malaysia’s capital is a sprawling city of over 7 million people in its metro area. Kuala Lumpur, or KL as the locals call it, was just a small tin mining town back in the 1800s.

However, it’s since become the world’s most important city for Islamic banking, surpassing even the likes of Dubai. It also has claim to one of Southeast Asia’s most significant oil & gas industries.

KL has immense multiculturalism with Indian, Malay, Chinese and Western influences. This means tourists and investors from all over the world visit the city. It’s not uncommon to see wealthy Arabs and Mainland Chinese alike – people almost certainly bringing capital with them.

Kuala Lumpur isn’t as large as Bangkok, Jakarta, or some other Asian cities. But it has several distinct neighborhoods where expats tend to buy real estate.

KL City Centre (KLCC)

In Kuala Lumpur’s center, the Petronas Twin Towers rise into the clouds while megamalls, condos, hotels and office buildings surround it. Malaysia’s largest city certainly has one of Asia’s best skylines.

This area has some of Malaysia’s highest prices – especially some of the branded condominium developments near Bukit Bintang and Pavilion Mall. Harrods, Four Seasons, Banyan Tree and a few more international brands have recently started building condos in KLCC.

The further away you get from Pavilion Mall, the Petronas Twin Towers, or any monorail station, the lower prices get. One of the more up-and-coming areas is around Bukit Ceylon near KL Tower. The nearest monorail station is a bit far away, but it’s perched up on a hill in an otherwise central neighborhood.

KL Sentral

Home to Kuala Lumpur’s central train station, KL Sentral is a master-planned business district near the city center with hotels, condominiums, offices, and transport options abound.

Perhaps most importantly, KL Sentral allows easy access to and from both the city’s international airports through the airport rail link. This alone has made the neighborhood popular with expats and those who travel a lot.

While KL Sentral is not really in the city center, it’s nonetheless nearby. It also has easy access to the KL Monorail and property prices here are not quite as expensive as in KLCC.

Damansara / Bangsar / Mont Kiara

All three of these suburbs have several things in common, even though they’re distinct areas. Damansara, Bangsar, and Mont Kiara are all in the west suburbs of Kuala Lumpur about a 15 minute drive away from the city center.

But they’re all nonetheless very popular with expats because of their affluence, western amenities, good international schools, diversity of restaurants, and low crime rate.

Prices are also noticeably lower per square meter in these areas than in the city center. All of these things together especially make Mont Kiara, Damansara, and Bangsar especially attractive for expat families.

Petaling Jaya

As a rather distant suburb of Kuala Lumpur, Petaling Jaya is not as premium as nor as convenient as the last three areas. However, prices are far lower. This makes it easier to afford large houses suitable for those needing lots of space – even if you are out in suburbia and will now probably need a car.

That doesn’t mean there’s nothing to do in Petaling Jaya. Some of the city’s largest malls, best restaurants, and greatest theme parks are out this direction. Many companies are also based here, making it even preferable for certain expats to live in the neighborhood.

But you’re still trading away convenience for lower prices. Everything is very spread out and some people even have concerns about safety and home break-ins in Petaling Jaya.

If you’re one of them, there’s still condominiums to choose from rather than the typical suburban, terraced house – and the rental yields for condos in Malaysia are higher anyway.

Penang

Malaysia’s second largest city is also popular with expats and retirees alike – although probably more of the latter due to the island’s beaches and more relaxed atmosphere.

Some of the most expensive properties in Penang are on the island’s east side near Georgetown – specifically the oceanfront condos on Gurney Drive. The street has been called “Millionaire’s Row” because of the pricy condos and large malls lining it.

More recently, condos and houses along the island’s north and northeastern sides have become popular with expats. These areas, which include Batu Feringghi, Tanjung Bungah, and Tanjung Tokong, are not as central yet boast great international schools and a more peaceful beachfront atmosphere.

The south side and middle of Penang are also seeing more development. Prices are not nearly as expensive in these areas, which include Banyan Bayu, Gelugor, and Jelutong. But the completion of a second bridge (with a third one planned) makes for easy access to the mainland.

These southern neighborhoods, specifically Banyan Bayu, are perhaps the best for investing in Penang real estate. Most of the island’s factories are in these areas. That, along with rapid urbanization, make it worth looking at the suburbs for a long-term, appreciation-based investment.

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Johor Bahru has an impressive master plan. But will it ever be realized?

Johor Bahru

Johor Bahru lies just across the strait from Singapore – Southeast Asia’s financial centre. It’s being pitched to wealthy investors as Malaysia’s very own Shenzhen.

Indeed, Johor Bahru does share similarities with Shenzhen. Like its Chinese counterpart next to Hong Kong, Johor Bahru’s location within driving distance of Singapore puts it at a unique advantage.

There’s potential for the two cities, Singapore and Johor Bahru, to eventually form a mutually-exclusive relationship. Malaysia’s low-cost of labor and manufacturing capability, along with Singapore’s wealth and innovation, can combine and benefit both nations.

The only problem? Johor Bahru is way overpriced and even more overbuilt.

Everything from amusement parks, to universities, to offices and (of course) residential property are popping up. Rich Chinese and Singaporeans are lured into purchasing real estate for all of the reasons stated above.

However for all the potential it has, Johor Bahru doesn’t yet have any industry to speak of. Occupancy rates are abysmal and few people seem willing to actually move to the city full-time and start businesses.

While people looking to store their cash might buy properties, all of the other things which make an economy (a population, jobs, tourism, etc.) won’t arrive just because a city is built.

Few people seem to realize this, and for that reason, I couldn’t recommend purchasing Johor Bahru property in good faith. At least not for now.

Kota Kinabalu / Kuching

Kuching and Kota Kinabalu are two very different cities which are more than 1,000 kilometers apart from each other. But from an investment perspective, they both share very similar traits.

Unlike all the other places on this list, these two cities are in East Malaysia in the states of Sabah and Sarawak. This location puts them off the beaten track for most people.

Kuala Lumpur, being the capital, is popular for obvious reasons. Penang is Malaysia’s second largest city and Johor Bahru is right next to Singapore. In contrast, Kuching and Kota Kinabalu not considered by many investors.

This should change very soon, as these two cities are among Malaysia’s fastest growing. Tourist arrivals are increasing, manufacturing and oil exports (the mainstays of East Malaysia’s economy) are booming, and the future looks bright.

Kota Kinabalu and Kuching are both medium-sized cities with a population of around 300,000 each. Over time, urbanization should drive the value of prime, centrally-located properties higher.

Real Estate Agents in Malaysia

Malaysia’s property market is easier to navigate as an expat than most other countries in Asia. The fact that English is widely spoken can be thanked for this, and online real estate portals such as PropertyGuru also help.

Perhaps because of this accessibility, the locals use property agents as well. This is in contrast to, for example, Thailand and Cambodia where agents basically exist just to take a commission while acting as a translator for clueless foreigners.

The standard agency fee in Malaysia is 2% payable by the seller. However this amount is heard to vary between 1% and 3%, being on the higher end in Kuala Lumpur and the state of Selangor. Typically the agent will keep half of this and pay the other half to his company.

Malaysia My Second Home (MM2H)

Real estate investors in Malaysia are able to get long-term visas for themselves and their families through the Malaysia My Second Home (MM2H) program. Those who meet the requirements can get 10-year, multiple entry visas which are renewable indefinitely.

The visa is effectively permanent residency, but there are a few differences. Most notably, you cannot work unless you’re aged 50 or above – then you can work for up to 20 hours per week.

The requirements for the program vary based on age, and the government seems to prefer older retirees. Unless you are above the age of 50 and earning a pension of at least RM10,000 per month, the requirements are as follows.

Must have bought a property for at least RM1,000,000.

Need to show evidence of ownership and full payment of the property.

Must have been purchased within 5 years of application for MM2H visa.

Will have to place a Fixed Deposit in a bank account in Malaysia of RM150,000 if under 50, and RM100,000 if over 50.

It should be noted that the fixed deposit does not have to be placed until after the applicant has received a letter of conditional approval. This letter sets out the steps that have to be completed before the visa is issued.

These steps usually consists of placing the Fixed Deposit, having a medical examination in Malaysia and obtaining medical insurance for Malaysia. Once these steps are completed the visa can be collected from the Immigration Department in Putrajaya.

Is Malaysia Property a Good Investment?

Malaysia, while often overlooked among the likes of Thailand and Singapore, has one of Asia’s most business friendly, unique, and deregulated property markets.

Yields might be low (and will probably remain so in the foreseeable future) and taxes might be high – but the potential for appreciation is even higher. The Ringgit is now at multi-decade lows, meaning its inevitable rise will have a multiplying effect on any returns.

Not only that, but prices per square metre are some of Asia’s lowest, despite the fact that Malaysia is more developed than most of its neighbors. Prices in KL, for example, are even lower than in Manila or Ho Chi Minh City.

Furthermore, the country’s population growth combined with urbanization should drive prices up in the city’s center in a way similar to, but not quite as fast-paced as what’s going on in Cambodia.

Don’t expect quick profits with Malaysia real estate. But the ability to own land combined with excellent potential for price increases makes Malaysia one of Asia’s better places to invest in real estate.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.